Publication Type
Journal Article
Version
submittedVersion
Publication Date
10-2022
Abstract
Two intermediary-based factors—a corporate bond dealer inventory measure and a broad intermediary distress measure—explain more than 40% of the puzzling common variation in credit spread changes beyond canonical structural factors. A simple intermediary-based model with partial market segmentation accounts for intermediary factors’ explanatory power and delivers three further implications with empirical support. First, whereas bond sorts on risk-related variables produce monotonic loading patterns on intermediary factors, non-risk-related sorts produce no pattern. Second, dealer inventory comoves with corporate-credit assets only, whereas intermediary distress comoves with both corporate-credit and non-corporate-credit assets. Third, dealers’ inventory responds to (instrumented) bond sales by institutional investors.
Discipline
Finance | Finance and Financial Management
Research Areas
Finance
Areas of Excellence
Growth in Asia
Publication
Review of Financial Studies
Volume
35
Issue
10
First Page
4630
Last Page
4673
ISSN
0893-9454
Identifier
10.1093/rfs/hhac004
Publisher
Oxford University Press
Citation
HE, Zhiguo; KHORRAMI, Paymon; and SONG, Zhaogang.
Commonality in credit spread changes: dealer inventory and intermediary distress. (2022). Review of Financial Studies. 35, (10), 4630-4673.
Available at: https://ink.library.smu.edu.sg/lkcsb_research/7920
Creative Commons License
This work is licensed under a Creative Commons Attribution-NonCommercial-No Derivative Works 4.0 International License.
External URL
https://api.elsevier.com/content/abstract/scopus_id/85137560673
Additional URL
https://doi.org/10.1093/rfs/hhac004